The 108-room Hotel La Jolla, which earlier this year had faced the possibility of foreclosure, has a new majority investor and nationally known operator committed to completing a major makeover of the decades-old property.

An affiliate of Westport Capital Partners, an investment management firm that specializes in distressed properties, has purchased more than $30 million in debt on the hotel at a discount and infused new capital to help finance ongoing renovations of the La Jolla Shores hotel.

"We’re very happy we’ve been able to come into the situation and provide capital to complete the renovation and help the property achieve its maximum potential," said Sean Armstrong, a principal with Westport, which has offices in Los Angeles and Wilton, Conn.

In 2009, the group of investors that purchased the 11-story hotel four years earlier for $25 million, had defaulted on its loan payments, and by last year did not have the funds necessary to complete ongoing renovations of all 108 guest rooms.

A more than $4 million renovation of all 108 of Hotel La Jolla's guest rooms was recently completed.— Courtesy of Kimpton Hotels

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A more than $4 million renovation of all 108 of Hotel La Jolla's guest rooms was recently completed.
/ Courtesy of Kimpton Hotels

Earlier this year, however, an affiliate of Westport Capital came to the rescue, and, acting as a lender, purchased the outstanding debt on the hotel. Armstrong would not divulge how much the Westport affiliate paid to assume the debt on the hotel.

He acknowledged that the company also has invested additional funds for the guest room remodel, completed about a month ago, and will also help finance a planned renovation of the lobby, pool area and relocation of the rooftop restaurant to the ground floor, expected to get underway later this year.

Armstrong estimated that more than $4 million was spent on the guestrooms but would not say how much more would be invested on the remainder of the hotel improvements.

Meanwhile, Kimpton Hotels and Restaurants, known nationally as an operator of boutique-style hotels, has taken over management of the Hotel La Jolla. It also operates the Hotel Solamar in downtown San Diego and recently purchased the Sè San Diego out of bankruptcy.

Orange County hotel broker Alan Reay noted that it is a common practice in the hotel industry right now for investors to come in and purchase debt at a discount from troubled owners with the end goal of taking control of the properties.

That is essentially what is happening with Hotel La Jolla, said San Diego home builder Ure Kretowicz, a current owner of the hotel through his investment firm, Cove Equity Group. The plan, he said, is to eventually transfer ownership to the Westport affiliate, which will be majority owner, and Cove Equity will remain as a minority partner.

"We’re excited because (Westport) has the same vision for the hotel as we do, but we had to shelve that because of what went on in the market," said Kretowicz, CEO of Cornerstone Communities, a residential developer. "What we’re proud of is we didn’t go the way of a lot of other investors who walked away. We know that the hotel is an incredible asset. You’ll never replace it. We knew that, as the equity market started freeing up, it was a matter of time we’d find a partner to step in and work with us."

Kretowicz said that the former fine dining rooftop restaurant known as Clay's has been reinvented as the Grill at Hotel La Jolla and eventually will be moved to the ground floor. His hope, he said, is to use the rooftop space for spacious ocean-view suites.

At one time known as the Summerhouse Inn, the hotel opened in 1972 and was built at a cost of $2.7 million.

Hotel broker Alan Reay of Atlas Hospitality Group believes the new ownership and management of the hotel will serve it well.

"Kimpton is very well known in boutique hotel management and very high quality, so it brings a lot to the table," said Reay. "And (the new owner) was able to buy the property below replacement value. La Jolla is a very difficult market to get into, and based on recent comparables they got a good deal."

Reach reporter Lori Weisberg at lori.weisberg@uniontrib.com or 619-293-2251. Follow her on Twitter @Lori_Weisberg.